The Fed prints money not only when it is conducting monetary policy but also when it
is paying bills as the fiscal agent for the federal government.
A) True
B) False
Capital inflow into a country is associated with:
A) imports exceeding exports.
B) a small amount of funds available for domestic investment.
C) imports equaling exports.
D) exports exceeding imports.
The circular-flow diagram shows the flow of _____ and the flow of _____.
A) goods and services; factors
B) households; firms
C) money; goods and services
D) factors; money
In periods of unexpected inflation:
A) borrowers benefit, since they repay their loans in dollars with lower real value.
B) lenders benefit, since they are repaid in dollars with a higher real value.
C) neither borrowers nor lenders are affected by the inflation rate, since their nominal
interest rate stays the same.
D) lenders benefit, since the nominal interest rate does not change.
Assume that workers and businesses are sensitized to inflation and are quick to raise
wages and prices in response to changes in the money supply. This implies that inflation
is _____ and there are _____ adjustments of wages and prices of intermediate goods.
A) high; quick
B) low; quick
C) high; slow
D) low; slow
Reducing taxes in response to a recession is an example of _____ policy.
A) monetary
B) investment
C) consumption
D) fiscal
The primary purpose of financial intermediaries is to redistribute wealth by
implementing a progressive income tax.
A) True
B) False
Although many of the regulations established in the 1930s have disappeared,
Regulation Q and the prohibition of commercial banks from trading financial assets,
such as stocks and bonds, remain in place today.
A) True
B) False
If real GDP is greater than planned expenditure, unplanned inventory investment is
negative.
A) True
B) False
More so than other financial assets, loans are specifically tailored to meet the needs of
the borrower.
A) True
B) False
Which statement about the U.S. economy is FALSE?
A) Since the Second World War, aggregate output has grown more slowly than the
population.
B) Since the Second World War, aggregate output has grown more rapidly than the
population.
C) Since the Second World War, macroeconomic policy has helped make the economy
more stable.
D) Long-run growth per capita is the key to higher wages and a rising standard of
living.
Automatic stabilizers are government spending and taxation rules that cause fiscal
policy to be automatically expansionary when the economy contracts and automatically
contractionary when the economy expands.
A) True
B) False
Holding everything else constant, a decrease in political risk in a country will MOST
likely cause:
A) capital inflows into that country to increase.
B) capital inflows into that country to decrease.
C) the supply of loanable funds in that country to decrease.
D) the country to become a politically riskier place to invest.
Which of the following is considered to be an IOU?
A) stock
B) bond
C) interest
D) dividend
Which of the following is an example of an intermediate good?
A) stocks and bonds purchased by a business executive
B) a cellular telephone purchased by a college student
C) a wedding ring purchased by an engineer for his fiance
D) tires General Motors purchased from Goodyear for new electric cars
A tariff is most likely to _____ prices and _____ domestic consumption of the good or
service being protected.
A) decrease; increase
B) increase; decrease
C) have no effect on; not change
D) decrease; decrease
Statements that make value judgments are:
A) pecuniary.
B) positive.
C) nominal.
D) normative.
If the labor force totals 100 million workers and 90 million are working, then the
unemployment rate is:
A) 1%.
B) 5%.
C) 10%.
D) 90%.
Suppose your grandma sends you $100 for your birthday and you deposit it in your
checking account. The reserve ratio is 10%. Based upon this deposit, the bank’s reserves
have increased by _____ and the bank’s checkable deposits have increased by _____.
A) $100; $100
B) $100; $90
C) $90; $100
D) $10; $100
_____ occur(s) when government spending results in persistent deficits that necessitate
borrowing, leading to a reduction in private investment.
A) Implicit liabilities
B) Transfer payments
C) Crowding out
D) Automatic stabilizers
Figure: The Production Possibility Frontiers for Jackson and Tahoe
Look at the figure The Production Possibility Frontiers for Jackson and Tahoe. In
autarky, Jackson produces and consumes 30 head of cattle and 80 bushels of wheat,
while Tahoe produces and consumes 80 head of cattle and 60 bushels of wheat. Each
nation specializes completely, based on comparative advantage, and the price of 1 head
of cattle equals the price of 2 bushels of wheat. If Jackson exports 120 bushels of wheat
to Tahoe, then the new consumption point for Tahoe after trade is _____ bushels of
wheat and _____head of cattle.
A) 120; 140
B) 120; 60
C) 60; 120
D) 400; 200
If potential GDP is growing at 3% and actual GDP is growing at 2%, then the
unemployment rate is below the natural rate.
A) True
B) False
The main reason that the Great Depression ended was:
A) effective monetary policy by the Fed under the leadership of Paul Volcker.
B) the defeat of Adolf Hitler in Germany in the 1930s.
C) Winston Churchill’s foreign policy.
D) deficit spending in the United States to finance World War II.
The threat of future inflation:
A) makes people reluctant to lend money for long periods.
B) makes people eager to lend money for long periods.
C) has no effect on lending money.
D) increases the value of money paid back in the future.
If the United States removed the tariffs and quotas on sugar, in the U.S. market for
sugar:
A) consumer surplus would not change.
B) consumer surplus would decrease.
C) total surplus would decrease.
D) producer surplus would decrease.
A revaluation can help reduce a(n):
I. inflationary gap
II. deflationary gap
A) I only
B) II only
C) I and II
D) neither I nor II
The deviations from the natural rate of unemployment in the actual rate of
unemployment are:
A) seasonal.
B) frictional.
C) cyclical.
D) structural.
Expansionary monetary policy increases all of the following EXCEPT:
A) aggregate demand.
B) GDP and the price level.
C) consumption spending.
D) interest rates.
Scenario: Exchange Rates
The value of a euro goes from US$1.25 to US$1.50.
Look at the scenario Exchange Rates. The exchange rate for the dollar has changed
from:
A) €0.25 to €0.50.
B) €1.25 to €1.50.
C) €0.80 to €0.67.
D) €0.67 to €0.80.
If every individual were required to be self-sufficient:
A) living standards would fall.
B) living standards for some individuals would fall, but for others they would rise.
C) living standards would rise.
D) it’s impossible to say how living standards would change.
Figure: AD”AS
Look at the figure AD”AS. Suppose the economy starts at E1 and moves to E2, where
AD2 intersects SRAS1.SRAS1 willshift to SRAS2 because:
A) real wages rise in the long run.
B) nominal wages rise in the long run.
C) the real money supply rises in the long run.
D) aggregate real output rises in the long run.